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For Interim CEOs, a Job Full of Pitfalls

January 8, 2016 |The Wall Street Journal

By RACHEL FEINTZEIG and JOANN S. LUBLIN

It’s hard being the in-between boss.

The temporary chief executives of Valeant Pharmaceuticals International Inc. and United Continental Holdings Inc. are currently getting a taste of the challenge while the firms’ full-time leaders are undergoing medical treatment.

Few management assignments hold as many pitfalls as that of the interim boss, say those who advise and research such leaders. Temporary leaders must show strength and rally the troops during uncertain times, but they also can’t make bold changes or act like they will run the place long-term.

In effect, the interim title says: “ ‘I am only keeping the chair warm for somebody else,’ ’’ says Robert S. “Steve” Miller, a turnaround expert who twice served as temporary CEO of Federal-Mogul Corp.

United and Valeant are just the latest big businesses turning to temporary leaders. Mattel Inc., Starwood Hotels & Resorts Worldwide Inc., Yahoo Inc. and Best Buy Co. also have tapped interim bosses in recent years. Such power transfers typically occur when a CEO falls seriously ill, leaves for a different job or gets forced out by fellow directors.

Brett Hart, United’s temporary CEO, knows what it is like to work for an acting chief. He was general counsel at Sara Lee Corp., when a fellow executive became interim CEO after the permanent leader suffered a stroke in spring 2010.

At Mattel, Christopher Sinclair was made interim CEO and chairman when Bryan Stockton resigned in January 2015 after a disastrous holiday season. Mr. Sinclair was lead director at the time and the company’s longest-serving board member. He ascended to permanent CEO three months later.

Mr. Sinclair said his Mattel board experience gave him “a sense of things, but you don’t have a really deep understanding” before becoming the company’s temporary top boss.

Among other things, he recalled, he spent his first 45 days trying to diagnose Mattel’s pressing problems and which executives he could count on for its turnaround. “I don’t think there were too many hours of sleep in those first 45 days,’’ Mr. Sinclair recalled.

Interim leaders risk criticism for being too assertive or too docile, according to Jeffrey Cohn, managing director for global CEO succession planning at recruiters DHR International. Brash action can anger the company’s board of directors, but tepid leadership can hurt an executive’s chances for advancement after the permanent leader returns or arrives.

Some interim chiefs plucked from senior management resume their prior role or take a different internal position, such as chief operating officer, Mr. Cohn says. Regardless, he added, “It is always a letdown. It’s hard to go back to hamburgers when you have had filet.”

About 29% of interim CEOs permanently end up with the top job, according to research by Gary Ballinger, an associate professor of commerce at University of Virginia’s McIntire School of Commerce, and a colleague. The analysis of 2,500 public companies found that those run by temporary chiefs logged lower net income and stock market performance than those that immediately replaced their CEO.

The search for a permanent CEO is another distraction for acting chiefs, Prof. Ballinger says. Meanwhile, less senior executives “tend to just sit there,” and put off launching new products or making decisions because there is not a permanent, powerful chief there to endorse ideas or award credit. “There’s a certain amount of strategic stasis,” Prof. Ballinger notes.

The financial impact can vary depending on whether the prior leader left suddenly because of illness or was fired.

A temporary leader’s ties to the company matter.

When Steve Jobs rejoined Apple as interim CEO in the 1990s, he immediately had “moral authority” in the organization, Prof. Ballinger says. But when Tim Cook tried out the top role during Mr. Jobs’ health crises, he was leading in the shadow of the company’s co-founder—a much more difficult task.

Mr. Miller, a turnaround expert, often resisted the “interim” title during his years running eight different companies. Now the head of International Automotive Components Group, Mr. Miller says he just tried to act like a CEO during his stints as Federal-Mogul’s interim boss. “I would make decisions that made sense to me and didn’t overly worry whether the next guy would do it differently,” he said.

Acting chiefs typically serve for less than a year. The exception was Sears Holdings Corp.’s W. Bruce Johnson who was interim head of the retail chain for three years until 2011 when the company settled on a permanent leader: Lou D’Ambrosio, a long-time technology executive who had been consulting with Sears.

Mr. Johnson had been a stopgap chief for so long that he joked at Sears’s annual meeting in 2009 that even his children had taken to calling him “interim.’’

In many ways, the job of the interim boss is defined as much by what a leader cannot do than by what he can.

She’s currently coaching two interim CEOs, and says the job of temporary leader can weigh heavily on executives in that role. They can’t commit to an organization too deeply or bond closely with those within the company because they’ll likely be out soon.

Ms. Temin advises such leaders who come from outside the company to mold themselves to the culture, adjusting everything from how they dress to how they communicate with employees so they fit in right away.

“It’s a short runway,” she says. “An interim CEO will rarely be able to change the culture.”